BOJ Board Member Says Rates Must Keep Rising to Keep Inflation From Exceeding 2%, Bolstering Sept. 18 Hike Bets

A Bank of Japan board member said the central bank should keep raising interest rates as underlying inflation nears 2%, adding to expectations of another hike next week.

Bloomberg reported on Sept. 10 that BOJ board member Kazuyuki Masu told business leaders in Fukui Prefecture that the central bank would continue raising its policy rate to adjust the degree of monetary easing, with underlying inflation now very close to 2% and financial conditions still accommodative.

“The most important thing going forward is to prevent underlying inflation from rising well above 2%,” Masu said.

Masu, once seen as a centrist, has recently adopted a more hawkish stance on monetary policy. His shift mirrors a broader move toward tighter policy across the BOJ board. Markets are increasingly betting that the BOJ will raise its benchmark rate by 0.25 percentage point from the current 1% at its Sept. 18 monetary policy meeting.

Inflation pressure tied to the Middle East is also strengthening the case for a rate increase. Masu said the war in Iran is driving up fuel and chemical prices, with the gains spreading across a wide range of goods. He added that higher transport costs for imported raw materials and rising fertilizer prices are also pushing up food prices.

Those price increases risk becoming more than a temporary shock and could evolve into a more persistent trend that lifts overall inflation, he said.

Recent economic data have also supported the case for further tightening. Japan’s second-quarter gross domestic product growth was revised up to an annualized 1.4%, while wage growth in July reached its highest level in about 30 years.

The swaps market is pricing in about a 97% chance that the BOJ will raise its policy rate on Sept. 18. Recent remarks by US Treasury Secretary Scott Bessent on the need for additional BOJ rate increases have also boosted expectations for a move.

Masu, a former Mitsubishi Corp. executive, had also signaled the need for a policy adjustment ahead of the BOJ’s rate increase in June. He is the last scheduled BOJ board member to speak before next week’s monetary policy meeting.